APRs Are Going Up. Is That a Good Thing?

April 05, 2017

APR stands for annual percentage rate. Basically, it’s the amount people who lend you money charge over a year in return for lending you the money. You know when people say, Oh, I pay 6% on my credit card, and other people say Awesome? The 6% is their APR. Their credit card company charges them 6% per year of the total amount they spend using their card.

So is it a good thing if your APR is climbing? Seems bad for your wallet, right?

In the short term, maybe. But in the long term, a higher APR can actually mean good things for your bottom line. The reason why is a bit complicated, but bear with us for a second and we’ll clarify. Just follow the bullets:

Banks, credit card companies and other lenders base their APRs on the prime rate.

That’s the interest rate the Federal Reserve — basically the nation’s biggest bank, which is popularly called the Fed — recommends that lenders give their most creditworthy customers. It’s basically a baseline for all other loans.

The Fed uses the prime rate to influence the nation’s economy.

When the economy slumps, the Fed lowers the prime rate to make it easier for people to borrow money, giving the whole economy a slow boost. But when we’re doing well, they raise it to try to keep inflation under control.

The Fed recently announced a quarter-point hike of the prime rate — which means they’re pretty sure we’re on the road to recovery from the Recession!

The Good Part: If we’re truly on the road to recovery, you might get that long-awaited pay raise. Your house might sell for more money. These are all good things.

The Bad Part: Remember that the Fed’s decision raises the APR on student loans, car payments, travel...pretty much everything. Your life’s going to get a little more expensive.

Even people who don’t use credit cards or have a mortgage, or whose cash is all stuffed under a mattress, are affected by APRs, because higher rates ripple through the economy. The landlord who is now paying more to buy property passes along those costs to renters; the grocery store whose lease just got more expensive charges more for bread and milk. So while things are getting better overall, you may need to save more and budget better.

Which, of course, means budgeting for healthcare. And that’s where we come in.

Right now North Carolina is trying to pass a series of new healthcare mandates — bills that force insurance companies to pay for extra benefits. And that means higher costs passed on to all of us in the form of premium hikes.

The economy may be recovering, but that shouldn’t have to mean you pay more for your healthcare. Fight mandates with us.

Understanding how rising APRs affect our lives makes the added financial hardship of mandates crystal clear. North Carolinians don’t need even more pressure on their fiscal health. Want to help alleviate the stress? Join us.

Ex 1: APR is NOT charged on the “total amount they spend using their card.” Instead, it’s the annualized interest rate charged on unpaid balances (although some institutions may apply daily credit charges on some loans, this typically does not apply to credit card purchases).

Ex 2: The Fed does NOT “recommend” a Prime Rate. The Fed SETS the “Federal Funds Target Rate” – in practice, the interest rate banks charge each other. Banks often set their Prime Rates by simply adding 3 points to the Target Rate; but banks set their own rates considering the Target Rate and other factors.